Small retailers reap the benefits of selling on Amazon, but challenges remain

Amazon brought in $14.1 billion in 2013 from other merchants selling products on its site, a 53% increase from 2012, Internet Retailer estimates. Smaller web retailers say they are relying on the Amazon marketplace to drive more revenue in 2014.

Selling on the Amazon marketplace in 2013 was very good to DealYard.com—27% better than 2012 in fact.

DealYard, a web-only retailer of kitchen and bathroom faucets, small kitchen appliances and sporting goods, would not disclose actual sales dollars derived from Amazon last year, but in 2012, online marketplaces such as Amazon and eBay delivered $6.8 million—79%—of DealYard’s $8.6 million total web sales, according to data in Internet Retailer’s Top500Guide.com.

Amazon is “the dominant marketplace for merchants to list their products,” says Robert Heller, DealYard.com’s CEO. “They do a great job in driving traffic and customers to their site. The majority of our sales are derived from Amazon.”

In its year-end earnings release in late January, Amazon did not disclose the dollar value of all items sold on its platform, often called gross merchandise value, but many analysts have made estimates. One close Amazon observer, Scot Wingo, CEO of ChannelAdvisor Corp., a marketing company that helps retailers sell on Amazon and other web marketplaces, estimates the retailer’s 2013 GMV at $140.6 billion. On average, Amazon takes about a 10% cut of all third-party sales, Wingo estimates, so that would mean Amazon raked in around $14.1 billion—or around 19% of its total sales of $74.5 billion last year—from other e-commerce companies selling their products on its site. That’s up 53% from Internet Retailer’s $9.2 billion estimate of Amazon’s third party revenue in 2012.

Top500Guide.com data show that many small retailers are benefiting from their relationships with Amazon, as they derive a sizeable amount of their total sales from the channel. Collectively, the 90 web retailers ranked in Internet Retailer’s 2013 Second 500 Guide that disclosed their sales from online marketplaces in 2012 brought in $98.6 million, or 14.8% of their $664.7 million in total sales, the data show.

Sales through Amazon’s marketplace grew even more in 2013, some smaller merchants say, but there are definitely challenges to succeeding on the platform.

On the plus side, merchants say, the e-commerce behemoth delivers shoppers on a massive scale, and it offers attractive advertising programs to help sell and deliver orders, such as Amazon Product Ads and Fulfillment by Amazon. Amazon Product Ads offer a way for shoppers to compare products by enabling retailers to display items in product ads on Amazon.com search pages. The Fulfillment by Amazon service lets marketplace sellers send their inventory to Amazon to pick, pack and ship on the seller’s behalf. The seller’s products also are eligible for free shipping under the Amazon Prime membership program.

However, Amazon’s marketplace also breeds stiff competition, as many retailers that sell on the same product lines. Additionally, all of them compete with Amazon itself, especially as Amazon continues to add products or enter new categories like flowers or baby products.

Summit Sports Inc., an online and chain retailer of sporting goods, received 22% of $16.2 million in 2012 web sales from online marketplaces. Its 2013 sales on Amazon increased by just over 20%, saysAndy Schepper, vice president of operations, though he did not reveal actual sales figures. Still, the heavy competition on many products puts a real strain on prices, which lowers the retailer’s profit margin, he adds. “Not only do you have thousands of retailers potentially selling the same product, you also have Amazon selling against you,” he says. “It’s difficult to carve out a niche.”

Oren Pollak, director of marketing and operations at MyJewelryBox.com, also cites competition from Amazon itself as the top challenge facing the web-only jewelry retailer. Its 2013 sales on Amazon grew almost 20%, he says. MyJewelryBox.com brought in $3.4 million in sales, or 20% of its total $17.2 million in sales from online marketplaces, data from Top500Guide.com show. MyJewelryBox.com pays Amazon a 20% commission, plus about 3% more for fees associated with its Fulfillment by Amazon program, Pollack says.

Summit Sports’ commissions are around 15%, Schepper says. The same rate applies to DealYard.com, which sells most of its products in the home and kitchen category on Amazon, Heller says.

Regardless of challenges and fees, these retailers all expect their sales on the Amazon marketplace to grow this year. “We have been working very closely with our team at Amazon and I am confident that we will see growth on the platform for 2014,” says MyJewelryBox.com’s Pollak.

Online marketplace sales and other key 2013 e-commerce data is being gathered now for the next editions of the Top 500 and Second 500 guides. It will also be available later this year on Top500Guide.com.